An important part of selling a business, which can be often overlooked, is pre-sale planning. By taking the time to properly evaluate the company’s management team, financials, documentation, and organizational risks, including environmental risks, legal risks, and other operational risks, the company can implement changes that will increase the value of the business. These changes will also help create an easier transition and due diligence process during an acquisition.
7 Keys to Successful Pre-Sale Planning
1. Have the Management in Place
Attractive businesses have leadership teams that are not only capable of running quality operations but can also help the business with strategy and future growth. Sometimes business owners may not transition operations and relationships to their management team before a sale, causing more difficulty for transition in an acquisition, as well as making the management team and business less attractive to a potential buyer. If a buyer has to rely on the owner rather than the management team for relationships and strategy after a sale, this could greatly impact the valuation of the business.
2. Manage Your Assets
Selling non-operational assets is an important aspect of pre-sale planning. If a company has assets that do not generate free cash flow, those assets may be sold during the presale process. Potential disposable assets include real estate or equipment that does not play a part in operating or generating cash flow for the business. Selling off non-operational assets will allow a company to clean up its balance sheet and will ensure that ownership will obtain value for the assets rather than receiving zero value because the assets do not generate cash flow.
3. Make Sure Your Financials Are in Order
During a sale, many companies may have difficulty during due diligence if a controller or CFO has not been managing the financials. A business will be more saleable if the financial statements are in accordance with GAAP and financial metrics are consistently reviewed to improve the accuracy of the operations. It also behooves a company to have had a review or audit completed for at least one year, although multiple years of audited financials would be more ideal. If a company has reviews and a controller, the numbers will be better prepared and more accurate so that a potential acquirer can place more trust in the financials of the business, the financial prospects of the business, and the management operating the business.
4. Have a Valuation Done
Many business owners kick off the sales process with an idea of how much they want, but no idea of the real value of their business. This is why obtaining a valuation is an important part of pre-sale planning. The business owner should have a target number in mind so if the valuation comes in lower, they can develop a strategy to reach their target valuation. This might include focusing on things such as customer or supplier diversification, expanding product lines or industry focus, adding management, or even acquiring other companies.
5. Keep Track of Documentation
Organizing documentation is a key part of pre-sale planning. This includes organizing items such as bylaws and minutes, as well as the details of benefit plans, and information regarding patents, trademarks, and environmental reports. The professionals working with you will need this to help you market your company, and buyers will need this information for their due diligence.
6. Address Any Limitations With the Sale
Pre-sale planning also involves considering any factors that may limit the possibility of a sale or make a company less attractive. This may include contracts that need to be renewed, reworked, or extended. There could also be certifications that are essential to the business and will not carry forward after the sale. Legal, environmental, and employment issues may also pose a problem if they are not addressed before the start of a sale process.
7. Get Professionals Involved Early
Finally, as companies perform their pre-sale planning, professionals should be involved early in the process. The company should consult with accountants, attorneys, and wealth managers to help with tax implications of a sale, as well as consult an investment banker with expertise assisting companies in preparing for the sale and moving through the sales process.
That’s where the team at MelCap comes in. We discuss our clients’ objectives and perform a thorough assessment to see if meeting those objectives is possible, or if there are steps in the pre-sale planning process that must be taken in order to meet those goals in the future. Whether it is selling for a specific value or finding the perfect buyer to grow the legacy of the business, MelCap will work hard to make sure our clients meet or exceed their objectives in an acquisition.